WRAP: OPEC Deals With Venezuela While Eyeing Iraq Issue

sg.biz.yahoo.com Sunday January 12, 4:47 AM By Fred Pals Of DOW JONES NEWSWIRES

VIENNA (Dow Jones)--OPEC members will try to find a compromise Sunday to raise the group's production ceiling by 1 million-1.5 million barrels a day to ease world oil prices, but the current turmoil in Venezuela is likely to be overshadowed by the prospect of an imminent U.S.-led war against Iraq.

ADVERTISEMENT A shortfall in crude output from Venezuela is already covered by other Organization of Petroleum Exporting Counties members pumping in excess of their quotas. It's the consequences of a war with Iraq that is setting nerves jangling, analysts say.

"For how long will Iraqi production be cut off in the case of a war? And what are the implications for the region? These are the issues OPEC has to deal with and look at during this meeting," William Edwards, president of Texas-based Edwards Energy Consultants, said Saturday.

Against such a cloudy outlook, OPEC kingpin Saudi Arabia has moved to reassure the world's oil markets that the group can make up for any shortage. Ali Naimi, Saudi Arabia's Minister of Petroleum & Mineral Resources, on his arrival in Vienna for the meeting, insisted: "There will be no shortage of oil in the market. There will be no missing barrels," The price of crude, he said, should be "less than what it is today."

The Saudi pledge, a timely release of U.S. Strategic Petroleum Reserves and a seasonal downturn in consumption starting in the second quarter will help cool world oil prices, Edwards said. "But I don't expect prices to ease a lot for some time," he added.

Chavez Sends Two Top Officials To Meeting

The Venezuelan problem can't be ignored at this meeting, however. The embattled former paratrooper Chavez understands that and has dispatched a heavyweight delegation featuring both his Oil Minister Rafael Ramirez and the president of state-owned oil monopoly Petroleos de Venezuela (E.PVZ), Ali Rodriguez, a former OPEC Secretary General.

That is to make sure the country gets its share of any quota increase eventually, even though it can't pump any additional oil now, Venezuelan oil ministry sources said.

OPEC needs to get the message from Caracas that Venezuela will return to its production levels of around 3 million b/d pumped before a general strike began 42 days ago, the sources said. Current production is seen at around 400,000 b/d, or even less.

"Venezuela is also crucial. For example, what happens if Venezuelan oil comes back on the market soon?" asked Herman Franssen, president of Washington-based International Energy Associates. But Franssen, as most analysts agree, thinks it will take Venezuela months to get back to previous production levels, if it gets there at all.

While there is little doubt OPEC will decide to boost by 1 million b/d or more over its current 23 million b/d limit, how many new barrels actually hit the market is a different matter, Franssen added. "Everybody except Saudi Arabia and maybe Kuwait is already producing at full capacity. I think we're talking of around 500,000-600,000 barrels of new oil," Franssen said. That may not be enough to cool prices significantly, he added.

OPEC, excluding Iraq and with sharply reduced Venezuelan volumes, pumped 22.6 million in December, according to a recent Dow Jones Newswires survey. Iraqi production has been seen at slightly more than 2 million b/d. Global demand for OPEC output is seen at around 25 million b/d.

Excluding Iraq and Venezuela, OPEC's spare capacity is seen at around 3.5 million b/d with the bulk - around 2.5 million b/d - coming from Saudi Arabia, according to OPEC figures.

Most analysts expect OPEC to agree on the increase, shared equally across its members, excluding Iraq. A temporary allocation of the extra barrels may also be agreed.

But as OPEC President Abdullah bin Hamad Al Attiyah said late Saturday, there's no "magic number" yet.

-By Fred Pals, Dow Jones Newswires; 0043-664-5446851; fred.pals.dowjones.com